Documentary Business

Peter Hamilton Consultants, Inc

The Rise of Netflix Increases Pressures on Producers. My Big Takeaways for 2018

Here are my key Takeaways for 2018.

It was the year in which Netflix accelerated its challenge to the entire film and television eco-system, with the Amazon behemoth adding to the disruptive force of online video.

1.Channels Under Threat.

  • Factual commissions boomed since the mid-Eighties.
  • A tiny documentary market exploded into the global Unscripted industry that enjoys $ billions in annual commissions, co-productions and acquisitions.
  • This new scale was primarily driven by the rise of the Cable / Satellite channels.
  • Their eco-system is based on two revenue streams: advertising (which fluctuates) and subscriptions, which are locked into multi-year contracts.
  • 2018 saw an acceleration in Cord-cutters, Cord-nevers and Skinny Bundle subscribers, particularly among the industry’s most valuable, young subscribers.
  • Most channels saw year-to-year declines in affiliate revenues as their subscriber base retreated.
  • This in turn limited their potential audience, and therefore their revenues from ratings-dependent advertising.
  • The psychology of channels execs has shifted from the optimism of only 5 years ago to anxiety for the future of their network, and amidst rolling layoffs, for their jobs.
  • As 2018 progressed, my prediction for the Cab/Sat channel sector shifted from “Long, Slow, Sunset” to a fear of something like the “Napster Disruption” that decimated the Music industry and its CD-based Retail model.

2.And That Means Pressure for Producers

  • Programming is the biggest expense category for Cab/Sat channels.
  • Established channels have been expected to commission 200-600 new hours a year to refresh their primetime schedules.
  • With revenues streams shrinking, the channels are commissioning fewer programs.
  • Many digital channels stopped commissioning.
  • Repeatable series and formats are increasingly more valued than one-offs and specials.
  • More development, pitching and “proof of concept” costs are laid off on producers, as we discussed in a podcast about the “Pitching Arms Race” with veteran producer Michael Hoff.
  • Networks like Discovery are delaying payment schedules and forcing tougher deal terms on producers.
  • Sweet Spots tend to be steady, but fewer units are being ordered for series.
  • Scaled up production companies are therefore more sustainable than the boutique and mid-range producers who until recently thrived in the industry.
  • Newbies can forget it: Either ‘Marry Up’ with a preferred producer or go find a job!

3.Netflix. Netflix. Netflix!

  • In 2018, the Cab/Sat model became “Old World”.
  • Call it “SVOD”, “OTT”, “Online Video” or whatever, the “New World” is led by Netflix and Amazon Prime.
  • Netflix is the dominator! 125+ million Netflix subs each pay around US$100 / year.
  • Its proprietary BIG DATA operation maximizes viewing and minimizes the churn that plagues most subscription services.
  • (Read my insider report on Netflix operations here!)
  • It is using this enormous cashflow plus debt to blow away the competition by spending billions on Originals.
  • Most of the expense is on Scripted movies, with 55+ already announced for 2019!
  • Movie budgets can exceed $200 million, and involve dozens of Super A-listers ranging from Bruce Springsteen to Martin Scorsese and Meryl Streep.
  • The same strategy is being applied to scripted series and original documentaries as well as Lifestyle content.
  • Genre giants like David Attenborough are increasingly making Netflix their first choice for partnerships, ahead of the BBC and other legacy brands and platforms.

Key Takeaway

  • Netflix is quickly moving to deliver such a vast river of original content in so many genres and quality levels that it is no longer just a rival to individual PAY-TV channels like HBO or Showtime.
  • Netflix is now challenging the entire PAY-TV and Hollywood movie eco-systems.
  • At $12 / month, the Netflix option is draining revenues, and hence programming budgets, out of the “Old World” eco-system and its $120 and more spent each month by subscribers to Cab / Sat systems.

Analyst Will Richmond recently cited a U.S. research survey in which respondents were asked about the source of their most recent favorable viewing experience: 30% said Netflix. 26% reported that it was one or other of all the networks in the Linear TV channel offering!

4.Netflix Cuts Documentary Acquisitions and Moves to Commissions

  • My Sunny Side of the Doc Case Study and podcast about The Cleaners captures Netflix’s shift from acquisitions to Originals in the documentary category.
  • In 2017 and prior years, Netflix rolled up to Sundance and other peak festivals with an open check book for acquiring completed documentaries that were finalists or award-winners.
  • In 2018, the acquisitions tap was suddenly turned off, and industry participants like Christian Beetz were left standing at the altar.
  • Netflix’s rapidly expanding Documentary team mainly follows the Leo DiCaprio / Virunga model that I wrote about at Thessaloniki years ago: the focus is to win Oscar and Golden Globe noms with Netflix-owned Originals that are about A-Listers or are hosted, directed or EP’d by A-List talent.


5.Amazon Prime: “Golden Globes Help Us Sell More Shoes!” Jeffrey Bezos

  • Many analysts forecast that Amazon will pass Netflix as the global leader in video entertainment.
  • Prime subscriptions continue to grow, and are now past 100 Mn worldwide.
  • Prime operates with a much more complex and sustainable eco-system than Netflix.
    • Prime is a high-margin video distributor that offers convenient, one-stop subscriptions to a host of OTT video subscription services, like HBO.
    • Prime is also evolving to become a platform, offering NFL and other sports codes, as well as scripted and factual originals.
    • Amazon Prime video is nested inside a shopping service that is curated by helpful customer reviews and offers next day delivery for purchases.
    • Amazon’s unique and private BIG DATA model captures and cross-links each subscriber’s entertainment and purchasing history with deep demographic data.
    • Amazon is now rapidly emerging as a leading digital advertising platform, with revenues behind only Google and Facebook.
    • However, Amazon leads the others in offering advertising solutions that target individuals based on their proven purchase behavior. And that is the Holy Grail of the entire digital economy!
  • Prime programming has been held back by an unsettled executive suite. A new team is rapidly expanding its Originals project, first in scripted series and movies, and now in Unscripted.
  • Watch out for Prime in 2019!

6.Facebook Watch Fumbles On

  • I covered how in 2018 Facebook stumbled from the world’s social media BF to corporate goat.
  • Mark Zuckerberg faced angry calls to step down amidst a cascade of scandals over Russian hacking, secret data partnerships, misleading Congress, and more.
  • Watch is Facebook’s video platform:
    • 75 million Facebook users spend at least one minute on Watch every day.
    • They average 20 minutes of time spent per day, though this viewing may not be continuous.
    • Less than 3.3 percent of Facebook’s 2.3 billion global users spend time on Watch. There’s still lots of room to grow.
  • However, Facebook’s commissioning strategy swings back and forth from strategic partnerships with Lifestyle video publishers to commissioning bigger entertaining shows like a reboot of MTV’s Real World and a series from Catherine Zeta-Jones.
  • FB’s reported video spend for 2019 ranges from US$90 Mn to $1 Bn.
  • Facebook’s video fumbles tell a story of how a corporate giant, even with one with endless resources, finds it difficult to successfully build a new business outside its core competency.
  • Facebook is dependent on its Newsfeed model. Its very profitable through advertising, but so far has been unable to evolve into a video platform.
  • Meanwhile, video-focused Netflix is relentlessly eating up the online video economy, followed closely by Prime.


A Final Thought

  • Despite the challenging business environment, the global documentary and unscripted sector is responsible for $ billions in annual productions and sales.
  • It will continue to offer opportunities of a scale that I could not have imagined when I entered the workforce decades ago.
  • And there are more 2018 Takeaways to come in future posts.

  • Updated August 2018

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